Property Purchase - Request for Decision Support

Hello!

My husband and I will buy a plot of land in about 2-3 months. We want to build on it in about a year to save a little more equity; a house offer is available.

Today we received a first financing offer and are a bit uncertain, because in the end we will have 2 loans (with the same bank). One loan for the plot of land for 55,000 euros (nominal interest rate 1.95, effective annual interest rate 1.97, installment 127 euros) and next year another loan of about 230,000 euros (nominal interest rate 2.15, effective annual interest rate 2.17, installment 805 euros). The plot will hardly be paid off after 10 years. After 15 years, there will also still be a considerable remaining debt on the house.

My question is whether you end up losing out with 2 separate loans? I always assumed that you finance the plot variable and with the start of construction you only service one big loan in the end, apart from possibly changing the bank...

Of course, everyone's conditions are different (income, expenses, equity, lending value, location, etc.) but I don't find the interest rates particularly low when you consider that it is only for 10 or 15 years.

Our offers (about 20% equity, rural plot) were around 1.5% for a €273,000 loan over 15 years.
For 20 years, we then accepted 2.17% effective interest. In addition, there is 20 years KfW at 1.27%, which makes about 1.84% mixed interest rate with 20 years fixed interest for us.

Whether this is because you are taking out 2 loans, no idea, but it definitely sounds high at first.

Did you go directly to the bank? Maybe try a broker.
The best option would of course be to finance the plot with equity and only take out the loan when building the house.

You should go through the numbers with financing calculators.

If you enter

[*]55,000 with 1.95% and a rate of 127 euros, it results in an initial repayment rate of 1%
[*]230,000 with 2.15% and a rate of 805 euros, it results in an initial repayment rate of 2.02%

It also shows how long the repayment takes, small loan 55 years, larger loan 33 years.

I consider the initial repayment rate too low, i.e. the installments should be higher.

Values change, for example, when increasing the installments by 100 euros each:

[*]55,000 with 1.95% and a rate of 227 euros, it results in an initial repayment rate of 3%
[*]230,000 with 2.15% and a rate of 805 euros, it results in an initial repayment rate of 2.57%

and the smaller loan is then paid off after 25 years, the larger after 28 years. The residual debt after the end of the fixed interest periods is then of course correspondingly lower.

Thank you very much for your answers.

Both loans are 95% financing, as the rest of the equity is needed for additional costs, among other things – which probably also explains the higher interest rate.

Exactly, one has a 1% repayment and the other 2% repayment. Increasing it a little looks much better in the calculation, we should do it that way. I just dread having to think about what to do next for the first loan after 10 years, and then again 5 years later.

We saw a financial advisor who did not look for the cheapest bank for us, but immediately suggested one that we had already had in mind anyway.

What I have set there then means 1132 euros per month instead of the previously planned 932 euros per month. In addition, there are still monthly ancillary costs for the house as well as, at the beginning, certainly small but nevertheless starting reserve formation.

And then have a look at
..

We had estimated rent and additional costs at 1,500 euros for ourselves, which is about right. It is probably almost more sensible to set the repayment of the first loan higher and to wait a little longer with the house construction.